Fund to cover jobless benefits down $560M in a year

Last spring, Ellen Valentino lobbied hard  to little avail  against a bill to expand unemployment benefits to part-time workers, arguing that the timing was not right during the recession.

Last week, Valentino, the Maryland state director for the National Federation of Independent Business, a trade group for small companies, may have felt vindicated as she pointed to an expected significant increase in the rates that employers will have to pay to beef up the state's unemployment insurance trust fund. That fund, which had about $900 million a year ago, was down to $341 million in mid-September as the ranks of the unemployed have swelled, according to state figures.

For the week ending Sept. 26, Maryland paid out $18.2 million in unemployment benefits, 55 percent more than in the same week a year ago, according to state figures. Maryland's unemployment rate was 7.2 percent in August, an increase from 4.5 percent a year ago. The number of unemployed in August, 213,574, was 57 percent above the level in August 2008.

"We saw the warning signs that the fund was struggling in the spring," Valentino said. "Others did not."

While the economic slowdown was largely responsible for the fund's depletion, it was not a good time to take on new responsibilities, Valentino said. The law providing jobless benefits for laid-off part-time workers took effect in the spring.

While the new rates are not finalized, businesses are being told to expect a significant rate hike for next year, said Ronald Adler, chairman of the Maryland Chamber of Commerce's unemployment insurance subcommittee and president and CEO of Laurdan Associates, a Potomac human resources management consulting and research firm.

State law requires the Department of Labor, Licensing and Regulation to review the trust fund by Sept. 30 and determine the following year's tax. Calculations should be completed by mid-October, with the new rates effective Jan. 1, said Elizabeth Williams, a department spokeswoman.

Under the state's unemployment tax schedule, employers pay taxes on the first $8,500 paid to employees starting Jan. 1. Businesses that have not laid off workers in the last three years pay the lowest rates.

Businesses paying the minimum per-employee amount of $51 this year can expect that to rise by at least $100 next year, said Adler, who is also a representative of a state unemployment insurance oversight committee. Valentino is also a member of that committee.

"For many businesses, the impact will be significant," Adler said. His company pays at the minimum rate, but because it has only a handful of employees, the increase's effect will not be great, he said. About 60 percent of employers pay the minimum tax rate in Maryland, but that will likely change, he said.

With the recession, there was little that could have been done to stop the increase because of the job losses being structural in nature, Adler said.

"People are collecting unemployment for a longer period of time," he said.

Around the nation, at least 20 states have seen their unemployment funds totally depleted and have been borrowing from the federal government, he said.

For many small businesses, the rate hike will be a big shock, Valentino said. "It will be a deterrent to new hiring," she said.

Valentino said she spoke briefly with Gov. Martin O'Malley (D) on Sept. 30 and he expressed his desire to find ways to help small businesses, such as possibly directing unused federal stimulus money to reduce the tax impact.